IMF wants promissory notes restructured


A RESTRUCTURING of the €30 billion worth of promissory notes used to prop up the banking system is needed for both political and financial reasons, according to the International Monetary Fund.

In its latest assessment of the Irish economy and the Government’s adherence to the terms of its EU-IMF bailout, the staff report says “a more durable extension of the debt service schedule on promissory notes” is needed to make austerity “politically sustainable” and reduce debt-servicing costs, thereby facilitating the State’s return to the bond market.

Enhanced European measures to deal with troubled banks would also help, the IMF said.

IMF mission chief for Ireland Craig Beaumont said there was no firm timetable for the release of a technical paper on the Anglo Irish promissory note issue, but he would like to move the process ahead at a “reasonable pace”.

The IMF called for “stability” in the European Central Bank’s funding of the Irish banks. This echoes repeated requests by the Government and its predecessor for a medium-term ECB funding arrangement for the banks. The ECB has consistently rejected making exceptions to its liquidity provision mechanisms for Irish banks.

The report distances the IMF from the decision to repay senior creditors in defunct banks and explicitly attributes the decision to the ECB, which insisted on the repayment because of its concerns about “pan-European financial stability”. It implicitly criticises that decision, saying that the “lack of burden-sharing on senior bank debt as part of the resolution process added to government debt, exacerbating the political difficulties with the annual payments of €3.1 billion due on the notes until 2023”.

Some differences between the IMF and the Government are made clear in the report.

On the Croke Park agreement which protects public sector workers from further pay cuts and any compulsory redundancies, the IMF states that its staff “see advantages in further wage reductions”. It suggests that the evaluation report on Croke Park, published this week, would be a good opportunity to review the deal.

Both the report prepared by IMF staff and the statement of the fund’s executive board describe the Irish authorities’ implementation of the conditions of its bailout as “steadfast” in the face of “considerable challenges”.

On the basis of the report complied by IMF staff and published yesterday, its executive board on Wednesday cleared the payment of the latest tranche of IMF funding to Ireland. The disbursement will amount to €1.4 billion in the current quarter.

“Approaching the half-way mark of its EU-IMF-supported programme, Ireland has once more met all programme targets,” David Lipton, first deputy managing director and acting chair, said.

He added that “bolstering growth and job creation is central to the success of the programme. Enhanced resources are needed for engaging actively with jobseekers, and care should be taken to avoid unemployment traps in the social payments structure”.

The report follow a visit to Dublin in April by IMF staff. These visits are conducted on a quarterly basis, as the IMF is obliged to do when it lends to a government.

Despite the deterioration in the wider European outlook over the past three months, the fund has maintained its economic growth forecasts for Ireland. It expects gross domestic product to grow by 0.5 per cent this year, a slight deceleration on the expansion of 0.7 per cent last year. In the 2013-2017 period, the fund marginally reduced its forecast compared to its last report in April. – (Additional reporting Bloomberg)